Waiting for the Dow Theory NonCon

Today, working on TradingMarkets 7 ETFs You Need to Know for Today, I noticed that the iShares Dow Jones Transportation Index ETF, IYT had made a move below the November lows.

Nobody  pays attention to transportation stocks - except for Dow theorists and the market technicians who love them.  As an old school technician, I've always had a soft spot for Dow theory and try to keep at least one eye occasionally on both the industrials and the transports to see if there are any major confirmations or non-confirmations.

Confirmation is one of the most fundamental and most widely misunderstood aspects of Dow theory.  I wrote a number of articles using Dow theory analysis during my years at Stocks & Commodities magazine.  My takeaway on the confirmation/non-confirmation debate is this:

According to Dow theory, only confirmations count.  If the industrials make a new high and the transports do the same, when we have a bullish trend condition - all else being equal.  Same if the industrials make a new low and the transports - same day or not - also make new lows.

However, non-confirmations in which the industrials make a new high and the transports fail to do the same are not decisive, "actionable events".  They may portend something significant, such a a reversal, but in and of themselves and for all practical purposes, non-confirmations are just confirmations waiting to happen.

So what are we to make of the fact that the Dow transports have fallen below their November 2008 lows while the Dow industrials have yet to do so?  At this point, the fact that the industrials are hovering above their November 2008 lows has created a non-confirmation that I'm sure Dow theorists have begun paying attention to.  And if the Dow industrials do follow the transports below the November lows, then we all might be paying more attention as this non-confirmation on Monday, February 2nd becomes a bearish confirmation in a few days or week's time.

But for now, it is just a non-confirmation, a non-event, a confirmation - to the upside or downside - waiting to happen.  And I'll admit, I'm waiting.